smart disclosure leveraging modern technology to improve consumer understanding megan thibos &...

Smart DisclosureLeveraging Modern Technology to Improve Consumer Understanding

Megan Thibos & Brian Webster

Consumer Financial Protection Bureau

January 13, 2014

MISMO Winter 2014 Summit

The MISMO Winter 2014 Summit Education Program is sponsored by:

Megan Thibos & Brian Webster: Smart Disclosure

Winter 2014 Educational Summit & Workshops

• Know Before You Owe (KBYO)

– Background

– Purpose

– Goal

• Smart Disclosures

• Benefits

• Vision

• Looking Ahead

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Agenda



• For over 30 years, federal law required lenders to provide – Two different disclosure forms to consumers at application

– Two different disclosure forms to consumers before consummation

• Truth in Lending Act (TILA)– Truth in Lending Disclosure (TIL)

– Federal Reserve Board

• Real Estate Settlement Procedures Act of 1974 (RESPA)– Good Faith Estimate

– HUD 1 Settlement Statement

– Department of Housing and Urban Development

• Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) directs the CFPB to integrate the mortgage loan disclosures under TILA and RESPA.

– Final Rule was issued on November 20, 2013

– Effective Date is August 1, 2015

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Know Before You Owe: Background

Background



• Purpose– Mortgages are complex transactions

– May include risky features

– Consumer needs to clearly understand important information about the mortgage

– Current disclosures are confusing and contain overlapping information

• Goals– Reduce paperwork and consumer confusion

– Use clear language and design

– Highlight the information that has proven to be most important to consumers

– Provide more information about taxes, insurance and possible rate/payment changes

– Warn consumers about features they may want to avoid

– Make the cost estimates more reliable

– Provide consumers with adequate time to review, understand and ask questions about the final costs of the transaction

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Know Before You Owe: Purpose & Goals

Speaker Name: Presentation Title


Loan Estimate Replaces the previous two

forms provided to consumer when applying for a mortgage.

Early TIL Good Faith Estimate (GFE)

Designed to help consumers understand.

Key features Costs Risks

Must be provided to consumer within 3 business days after loan application.

MISMO mapping completed by MISMO Originations Working Group.

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Know Before You Owe: Form Integration (I)

Speaker Name: Presentation Title


Closing Disclosure

Replaces the previous two forms provided to consumer when closing the mortgage loan.

Final TIL HUD 1 Settlement Statement (HUD 1)

Designed to provide: Parallel format to the Loan Estimate Clear understanding of all of the costs

associated with the transaction.

Must be provided to consumers three business days prior to closing.

MISMO mapping led by GSEs and endorsed by MISMO Originations working group. Electronic submission of data will be required under GSE Uniform Closing Dataset policy.

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Know Before You Owe: Form Integration (II)



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KBYO: A suite of related initiatives

TILA-RESPA INTEGRATION

Improving the consumer mortgage experiencethrough modern technology

Owning A HomeConsumer-friendly

tools and resources for mortgage shoppers on consumerfinance.gov

KBYO: Closing Time

Working with lenders and vendors to improve the

closing experience through technology

Smart DisclosureEmpowering consumersto better understand andevaluate their mortgage options through useful

access to their owndata



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What is smart disclosure?

Disclosure

(information pertaining to the consumer and/or a transaction)

in a “smart” format

(electronic data version of the disclosure information)

to the consumer

(or to a third-party app authorized by the consumer)

CounselorsCounselors

ThirdThird Party Party ToolsTools



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Why smart disclosure?

PROBLEM: Mortgages are complex & evaluating options is difficult for consumers.

•Pricing is multi-dimensional; consumers tend to focus on only one variable.•Compound interest, variable payments especially difficult to grasp intuitively. •Many consumers may make tradeoffs based on a gut instinct or rough approximation of the costs rather than a careful analysis. •New CFPB integrated forms will help improve understanding, but paper-based forms have limitations (e.g., they are inherently static).

HOW CAN SMART DISCLOSURE HELP?

•Delivering disclosure information in a “smart” data format enables the use of modern visualization and decision-support technologies that will…•Lift the information up off the page and into dynamic formats that are easier to understand.•Help consumers grasp complex concepts more intuitively and more effectively evaluate and compare options.•Leverage external datasets (such as a consumer’s personal financial history) to better contextualize the loan offer and better prepare the borrower to make timely payments.



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Why now?

1. Smart disclosure will enhance and support the CFPB’s other efforts to improve the consumer mortgage experience

TILA-RESPA INTEGRATION

Owning A HomeConsumer-friendly

tools and resources for mortgage shoppers on consumerfinance.gov

KBYO: Closing Time

Working with lenders and vendors to improve the

closing experience through technology

Smart DisclosureEmpowering consumersto better understand andevaluate their mortgage options through useful

access to their owndata

“Redline” Loan Estimate vs. Closing Disclosure

Personalized tools and resources

• Lenders and vendors will be re-tooling their systems to meet TILA-RESPA integration requirements in 2014-2015.

• Organizations looking to enhance compliance capabilities can take advantage of benefits of implementing smart disclosures.

2. Leverage current opportunities from TRID



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Benefits for industry

Better informed borrowers = better performing borrowers

•Tools will help borrowers visualize their mortgage offer – over time, and in conjunction with the rest of their financial lives. •Tools will help borrowers make smarter tradeoffs between loan options (e.g., rate & points), reducing time spent by loan officers to draw up different offer permutations.•Lenders can use the standard too! Many opportunities for innovation.

Early participants will…

•Have an opportunity to help shape the program from the ground up•Have an opportunity to get out in front of a long-run market trend•Have an opportunity to collaborate closely with the CFPB

Compliance and Loan Quality

•Reduce compliance burden through more efficient data management•Improve loan quality by improving quality and security of the data•Potential for reducing fraud by direct alignment of the data and documentation



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Our vision

Disclosure

in a “smart” format

to the consumer

In collaboration with industry, CFPB seeks to build the technological “plumbing” and develop program ground rules to enable:

We need your help!

Loan EstimateCounselorsCounselors

ThirdThird Party Party ToolsTools



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Getting from A to B

We have a few basic principles and assumptions….1.This is an experimental and collaborative pilot program. We don’t have all the answers and look forward to working with industry to refine our vision.2.The program will be based on an open standard. Third party app developers (and lenders!) can compete to provide the best visualization and analysis tools.3.The program will leverage MISMO’s Loan Estimate mapping.4.Participation will be voluntary for lenders/vendors.

And we look forward to working with MISMO and the industry to flesh out the details…

Many questions….1.How should the data file format be specified? (Is this an appropriate use for MISMO SmartDocs?)2.What transmission mechanism(s) should be used to transmit the data from the lender/vendor to the consumer and/or the consumer’s choice of app?



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Questions?

Megan Thibos


202-435-7370

[email protected]

Brian Webster


202-435-9609

[email protected]

Web Address: www.consumerfinance.gov



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Thank You to our 2014 Winter Summit Primary Event Sponsor

smart disclosure leveraging modern technology to improve consumer understanding megan thibos &...

Documents

smart disclosure winter

mismo winter

lending disclosure

different disclosure

consumer confusion

background background

presentation title winter

mortgage loan disclosures